The spot exchange rate between won and dollars is

. Nominal interest rates are equal in the United States and South Korea, so through interest rate parity. The Korean subsidiary of a U.S. parent purchases an asset worth $1 million and capitalizes this asset in its financial statements at

. Suppose the spot rate is in one year, and that the dollar value of the Korean asset remains $1 million.

a. The parent firm consolidates its financial statements at the end of the year. Translate the book value of the Korean asset back into dollars at the current spot rate and the historical cost of W1 billion.

b. How large is the translation gain/loss on this asset from the perspective of the U.S. parent? Is this translation loss also an economic loss?

c. Suppose the parent hedges against the translation loss by selling W1 billion forward one year. What is the consequence of this forward hedge for the firm's net translation exposure?

Compare the consequence of this forward hedge for the firm's translation and economic exposures.

d. Is this forward hedge likely to qualify as a hedge under ASC 815 Derivatives and Hedging?